Environment editor, The Age

A massive Chinese state-owned company has been given $25 million by the Victorian and federal governments to develop more Latrobe Valley brown coal.

Shanghai Electric will be announced on Monday as the final winner of government grants for new brown coal pilot projects. It is promising to build a $119 million demonstration plant to process coal into briquettes.

The Napthine government wants to spark wider development and export of Victoria's vast brown coal reserves. But environmentalists want brown coal phased out because of its high greenhouse gas emissions when burnt, even compared with more common black coal.

State Energy Minister Russell Northe said: “Victoria is home to one of the world's largest brown coal reserves and this joint investment will enable the development of new, smarter, cleaner and sustainable uses for this important resource."

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The Shanghai Electric project will see one million tonnes of coal a year processed into 580,000 tonnes of briquettes and exported for use in a Shanghai power station. The company is promising 100 construction and 40 ongoing jobs from the project.

A spokeswoman for Mr Northe said a transport strategy would be developed to determine the export point for the coal. A 2012 transport plan created by industry suggested the first two million tonnes of exported brown coal could go through the Geelong or Melbourne ports.

The demonstration plant will be built at and use coal from the Loy Yang A power station and mine, which is owned by Australian energy giant AGL.

Shanghai Electric said that, if the project was successful, it would consider building a commercial plant, which according to the state government potentially would supply Latrobe Valley brown coal-fired power plants.

The grant has long been in the wings. The Age revealed Shanghai Electric was favoured to win a grant in August last year, with a leaked Victorian trade office note indicating the project would be supported by the two governments' Advanced Lignite Demonstration Program, which is what has occurred.

Shanghai Electric is state-owned but also listed on the Hong Kong and Shanghai stock exchanges. It has a total value of $7.6 billion.

The news comes as the federal government cut $1 billion from the Australian Renewable Energy Agency in the federal budget. It also is reviewing Australia's 20 per cent renewable energy target for 2020.

Environment Victoria chief executive Mark Wakeham said Shanghai Electric's plans were dangerous because it could develop a new export industry for a highly-polluting product.

He said that would mean coal trucks and trains clogging up Melbourne as the coal is taken to port. And further exports would require a new port, with Mr Wakeham suggesting the industry's preferred option was 90 Mile Beach in Gippsland.

"These plans will be hard fought by environmentalists and local communities who would be impacted by new mines, ports and transport infrastructure," Mr Wakeham said.

Mr Northe said Shanghai Electric had tested the processing of Loy Yang coal in China, which showed a reduction in emissions, though he did not say how much. He said China had encouraged Shanghai Electric to find a reliable fuel source for the company's coal power assets.